No reference to Arbitration unless clear unequivocal denial of a right

Southern Railway Vs Cherian Varkey Construction Co. Pvt. Ltd. (Kerala High Court)

Conclusion: There was no right to apply for reference of a dispute to arbitration until there was a clear and unequivocal denial of the right asserted by one party by the other. A cause of action for seeking reference of the dispute by recourse to arbitration in respect of the claim made by the assessee-contractor against the Railway arose only when the final bill of the work was drawn, therefore, the request of the Contractor for reference of the dispute to arbitration on 03.04.2014 was well within the period of limitation.

Held: Assessee-contractor was awarded certain work from the appellant Southern Railway for the construction of an overbridge.  Before the disbursement of the final payment, the contractor was asked to submit a No Claim Certificate in terms of the contract, and this was done on the condition that it should not prejudice their right to pursue the claim of Rs. 1.19 crores. However, the final payment was released without considering this claim, and the contractor sought resolution of the dispute. The contractor moved an appeal under Section 34 of the Arbitration and Conciliation Act 1996, and the Additional District Court set aside the award holding that the date of the final bill, and not the date of completion of the work, was the crucial date for determining the limitation period for an arbitral reference. Since the reference to arbitration was within 3 years from the date of the final bill, the claim was found to be within limitation. Aggrieved by this, the Railways approached the High Court. It was held that the materials on record would show that even though the work was executed in full by the Contractor before August, 2008, the final measurements of the work were taken by the Engineer only on 10.03.2012. It was thereafter that the Contractor was required by the Railway to furnish a No Claim Certificate. As noted, the Contractor had not furnished the No Claim Certificate sought by the Railway. Instead, they had furnished a No Claim Certificate on 26.09.2012 subject to the claim made by them on 12.01.2010. It was thereafter that the final bill of the work was drawn on 13.12.2012, without considering the claim. Since a dispute entails a positive element, a mere inaction to pay did not lead to the inference that a dispute exists and there was no right to apply for reference of a dispute to arbitration until there was a clear and unequivocal denial of the right asserted by one party by the other [ Rashtriya Ispat Nigam Ltd. v. Prathyusha Resources & Infra (P) Ltd., (2016) 12 SCC 405]. In the case on hand, a clear and unequivocal denial of the claim raised by the Contractor could be inferred only when final bill of the work was drawn by the Railway ignoring the same despite a No Claim Certificate furnished in the aforesaid manner. A cause of action for seeking reference of the dispute by recourse to arbitration in respect of the claim made by the Contractor against the Railway on 12.01.2010 arose only when the final bill of the work was drawn on 13.12.2012. In short, the request of the Contractor for reference of the dispute to arbitration on 03.04.2014 was well within the period of limitation.

FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT

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